Six in ten workers face a retirement shortfall: can MPF voluntary contributions help?

This article is a rewrite of a report from May 2012.

An AIA survey on Hongkongers’ ideal retirement found that more than 60 per cent of working respondents expected their savings at retirement to fall short of the lifestyle they wanted — a “savings gap” group that might have to delay retirement by an average of 8.5 years. For those unwilling to work an extra 8.5 years or cut spending, plugging the gap starts now — including through MPF voluntary contributions.

What are MPF voluntary contributions?

MPF voluntary contributions are extra payments made to an MPF scheme on top of the mandatory contributions required by law, by employers or employees. Though not legally required, regular extra contributions harness dollar-cost averaging and compounding — a little more each month, kept up over time, can build a markedly larger retirement reserve and help close that 8.5-year gap. Those who can afford it might raise monthly savings or investments.

Deposits may not beat inflation

The survey also found deposits — savings plus Hong Kong-dollar and foreign-currency time deposits — were workers’ main retirement tool, taking 37 per cent of monthly retirement saving and investment. But deposit returns may not keep up with inflation, so workers were advised to consider raising the investment or MPF share of their savings, within their risk tolerance, for better return prospects.

Engaged savers retire better prepared

A further finding: workers whose expected reserves could cover their ideal retirement scored higher on MPF knowledge and engagement than the “savings gap” group — and felt more confident about hitting their goals, with fewer worries. In short, paying attention to one’s MPF makes a measurable difference.

Review at least twice a year

MPF contributions are the fruit of hard work and deserve active management: review the investment mix at least every six months, rebalance when needed, and consolidate preserved accounts for easier oversight. Those short on time or expertise can seek advice from a professional financial adviser.